From smartphones to fast food, major American brands are rapidly losing market share in China to domestic rivals. Cao is part of a population increasingly embracing Chinese brands, including Luckin Coffee, tech company Huawei, sportswear seller Anta and fast-food restaurant chain Mixue, that are eating away at American brands’ market dominance in the country.

“It’s unnecessary to stick to foreign brands anymore,” Cao said.

President Trump’s escalating tariff spat with China threatens to push Chinese consumers even further into the arms of domestic brands. After Trump’s tariffs announcement, Fuzhou-based supermarket chain Yonghui Superstores released a statement calling for Chinese companies to take over its shelves.

“Let’s gather the starlight of ‘Made in China’ into a galaxy that illuminates the domestic market,” the letter proclaimed.

And Beijing said last week it would restrict American film imports, tightening the spigot just ahead of Hollywood’s critical summer movie season in a market in which audiences were already gravitating toward Chinese releases.

Stiff competition

Many of America’s most popular brands around the world—Nike, Starbucks, Tom Cruise—have run into competition in China from newer companies trying to beat them at their own game, eroding years of American dominance and soft power.

In March, Nike said its quarterly sales in China had dropped 17% from the previous year. That month, domestic Tesla sales were down 12%. BMW, Porsche, Apple, Starbucks and L’Oréal have all warned investors that the China growth that was once a quarterly refrain had turned into slumping sales.

“Ne Zha 2” beating the global grosses of most of the world’s most popular movies was an exclamation point on the trend. The success of the movie was aided by a patriotic campaign that included “collective watching” organized by the government for state employees. During one of the events, the audience were asked to sing the national anthem.

Hollywood movies are part of the service trade between the U.S. and China, a new front in the trade war. Unlike goods, the U.S. sells more services to China than the other way around. Movies are a much smaller part of that trade than other sectors, such as the billions of dollars that Chinese families spend on a U.S. college education, but few sectors match their symbolic heft.

Trump, who has frequently turned major studios such as Disney into political targets, had little sympathy for the studios eyeing an uncertain future. Asked Thursday about the restrictions on cultural imports such as American movies, Trump responded, “I’ve heard of worse things.”

Soon after word of the restriction on American films spread, Chinese film authorities backchanneled to American executives to tell them they didn’t expect the policy to affect the studios’ most anticipated releases, according to people familiar with the conversations. Chinese movie theaters need those grosses to keep revenue up and generate foot traffic in the malls that house the cinemas.

A window into Beijing’s calculus will come soon. Brad Pitt’s new movie, the big-budget racing drama “F1,” is scheduled to be submitted to Communist Party authorities for review this week.

Losing soft power

American movies began flowing into China with the release of Harrison Ford’s “The Fugitive” in 1994, part of an opening up of the market to Western brands.

By 2012, studios could count on nine-figure grosses out of Chinese theaters for top-performing films. In 2019, “Avengers: Endgame” became the highest-grossing American movie in the market’s history, with $603 million.

The money came with a political cost: Studios had to agree to censor films with material deemed problematic by authorities, and the country often used the movies as political leverage.

When the U.S. and China traded barbs during Trump’s first administration, studio executives noticed a tightening of American releases into the market. During the Covid-19 pandemic, Chinese authorities went months without letting in an American movie, driving the country’s moviegoers further toward their own filmmakers.

This time, the impact from a worsening trade war could mean Chinese consumers tighten their belts, buying less of everything, even domestic brands, economists warn. Still, some consumers remain confident, at least for now.

Chris Jia, a 29-year-old graphic designer in Fujian, sees the Chinese brands that have come to fill his life everywhere he looks: from the appliances he uses at home to the athleisure he wears when jogging. Jia grew up watching American and Japanese cartoons, and still keeps action figures of Transformers and Toy Story characters on his bookshelf. But he hasn’t seen any Hollywood movies so far this year.

“My friends all say that our personal lives won’t be affected by the trade war that much because we don’t really rely on American products,” Jia said. “When I think about it, they have a good point.”

Write to Liyan Qi at Liyan.qi@wsj.com and Erich Schwartzel at erich.schwartzel@wsj.com